Money Rehab with Nicole Lapin - Finding Your Financial Soulmate

Episode Date: September 18, 2023

Originally aired 9.15.22 We are bullish on money tips (duh!), and when it comes to financial literacy, we say: the more, the merrier. That’s why Nicole highly encourages all Money Rehabbers to have their own financial advisor. And to help you find one that’s the perfect fit for you, Nicoel sits down with Josh Brown— aka the Reformed Broker— who, like us, thinks everyone should have a financial advisor.

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I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no

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And should I have a 401k? You don't do it? No, I never have. You think the whole world revolves around you and your money. Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg.

The only financial expert you don't need a dictionary to understand. Nicole Lappin. I've said it before and I will say it again. Doctors have doctors, shrinks have shrinks, and financial advisors have financial advisors, including yours truly. I am bullish on money tips, obviously. And when it comes to financial literacy, I say the more the merrier. That's why I highly encourage all money rehabbers to have their own financial advisor. And to help you find the one

that's perfect fit for you, I'm talking to Josh Brown, aka the reformed broker, a financial advisor who, like me, thinks everyone should have a financial advisor. Let's get into it. Josh, aka the reformed broker, I am so excited to say welcome to Money Rehab. Nicole, I've missed you all this time. It's so great to be reconnected. Can't wait to chat today. We used to hang a million and a half years ago on CNBC's early morning show. It is so, so fun to be reunited. Today, we're talking all about financial advisors, one of my most favorite topics. And you're going to give us great tips on finding your, I guess it would be like your financial soulmate here.

Well, that's in a best case scenario. Yes. We're going to aim for the best case scenario here. This is something I tackled in my latest book. And at the end of our chat, we're going to do a little role playing straight out of the book. So get pumped. But first, let's start at the beginning. I want to find a financial advisor. Where do I start? That's a great question. The first place that I would start in the year 2022 would be on the CFP's website. CFP is a certified financial planner. It's basically the highest level. All right, let me put it to this way. In order for a financial advisor to become a certified financial planner, they have to have gone through.

It's about two to three years worth of worth of schoolwork, let's say tests. Oh, it's no joke. I went through this income taxation, retirement planning, lots and lots of fun. That's right. And then on top of that, they need some work experience. They don't they don't qualify until they've got a certain amount of time under their belt actually in the field. And there are tens of thousands of certified financial planners. They're in every region of the country, all walks of life. So you can find someone that you feel comfortable with no matter who you are. But I really would say like, that would be a great place to start.

We've got 26 client facing financial advisors at our firm. And I think all but two have the certified financial planner designation. So I would say like, that's a really great starting point. And then, if it's like important that somebody is near you, you would search by zip code. If it's important to you that somebody is coming from a similar background that you are, that's the kind of thing that you can look for on LinkedIn. But you really want to make sure you're working with somebody who knows what they're doing. Because if you're paying for advice, it should be coming from a source where it's good advice. Yeah, the CFP designation is kind of the gold standard of the industry. But yeah, there's a ton of alphabet soup, of course. We have fiduciary, RIA, we have

broker, we have a bunch of acronyms, we have a bunch of accreditations. Which ones are the most important besides the CFP designation? Well, you will come across a lot of people working in finance who have a CFA, which is a chartered financial analyst. That is useful in so far as you learn how to study the market, handle portfolio construction, select investments. So you'll find a lot of people who have the CFA designation. But if they don't also have the certified financial planner designation, they're not going to be as much of an expert in the things that are really relevant to you. So let me demystify a few things. RIA, what does that mean? It's a registered investment advisor. That's somebody who has a fiduciary duty to you. The RIA is a distinction to the broker. The broker only has to sell you products that they believe

to be in your best interest, which is not as high a standard of care as the fiduciary relationship. So you want a fiduciary, if possible. You want someone that is a registered investment advisor. The RIA industry is the fastest growing within all of the advice business. And when you hear people say things like wealth management, that's typically what they're referring to. There are 18,000 plus independent registered investment advisory firms. So again, these firms exist all over the country. We have a firm that's based in New York, but with employees in 25 different states. It's not hard to find somebody who is a fiduciary and also a certified financial planner in this day and age. It's actually very popular

and it's the fastest growing segment within finance. Nicole, I think to answer your question more directly though, if you can find someone who has a fiduciary responsibility to their clients because they are overseen by the SEC as opposed to FINRA and they are a registered investment advisor, that's great. If they are also a certified financial planner, even better. And then if they have all these other acronyms after their name, some of those have to do with insurance. Some of those have to do with various levels of personal finance insight. But in the end, those are only going to be the things that are a starting point. The relationship with the advisor is going to supersede all of that stuff. precede all of that stuff. So if I have 8 million different acronyms after my name on my business card, but you don't trust me, or you don't feel like you can rely on me, it doesn't matter how many online courses I took to earn those designations. Well, it's nice to have both. We'll first have the right designations and make sure that they're a fiduciary, and then you can have the vibes, I think.

I love that you break down the difference between a broker and a fiduciary. I like to think of it like a dietician versus a butcher or a salesperson at Bloomy's versus your own stylist. So your own stylist, you're paying a flat fee. That would be like the fiduciary versus the person at the department store is getting a commission on what you buy. So they're working for the product versus the stylist is really working for the best interest of you. Is that a good way to think about the difference between the fiduciary and the broker? Because I think some people get confused. They'll get a card from like some financial firm and they're the vice president of blah, blah, blah. And you don't really you can't tell immediately if that person is a broker or if that person's a fiduciary. So how do you break that down? Sure. A broker is a financial salesperson. And by the way,

it's not a dirty word. There are some people that having a broker is all they need. Who are those people? Those are people that want to come up with their own investment ideas. They're not necessarily looking for advice. They're really looking for somebody that can execute a trade or can get them access to a very specific type of fund. And in that situation where someone is serving as their own advisor, all they really need is a broker. The thing is, though, that's a very narrow percentage of the general public. In my view, most people in the general public need advice. is there has never been a higher availability of advice and technology has enabled this. And most of the existing large, large and medium sized firms have figured out if they are going to be a broker, they should also offer advisory services. So it's very widespread. You can get advice almost anywhere. That is both the good, the good part and the bad part. That's the double-edged sword. Because everyone is offering advice, it's almost like incomprehensible to somebody just like

approaching it for the first time. Like, how do I know who to even listen to? Okay. So first things So how are you compensated is the best question to ask to separate out who's a broker or a financial salesperson and who's actually an advisor. And this is very cut and dry. Someone who's a broker can get compensated by a third party. So they sell you an insurance product or they sell you a certain type of fund versus a different kind of fund because the fund family that's paying the highest is who they're selling to you. That's a broker. Again, it's not illegal. It's just they don't have the same standard of care to serve as your fiduciary only. If someone says to you, how do I get paid?

You pay me. Okay, great. Can anyone else pay you? No, because I'm your fiduciary. So I don't have a conflict. I'm not going to sell you fund ABC because fund XYZ isn't paying me as much of a commission. I can't do that. It's illegal if I am an investment advisor representative acting as a fiduciary. So starting out with how are you compensated will immediately eliminate the financial salespeople. Okay, great. Now you're starting with only people who are being paid by you. And I think that that's a really good way to like narrow the field down to people that have no choice, but to have your best interests at heart at all times. Yeah. So let's dig into that. I think it's really, really important to first make sure that somebody has the right accreditations, is a fiduciary. It doesn't,

though, guarantee that you'll be protected. We should remind everyone that Bernie Madoff was a fiduciary. So beyond accreditations, can you talk about some of those other things that listeners should talk about with potential advisors to vet them and make sure they're the right fit for them? Well, I'm glad you mentioned Bernie Madoff. What's really interesting about that situation, as catastrophic as it was, Bernie Madoff was an example of one of the biggest red flags that every investor should be aware of. He was self-clearing. Let me break down what that means. Bernie Madoff, in addition to having an advisory practice, also owned a broker dealer, which I think was Bernard L. Madoff Securities. So in other words, he had his own hedge fund. He was putting clients' money into the hedge fund.

The hedge fund was utilizing the related broker dealer that he also owned to allegedly do the trades. Now, we know the trades weren't done. The money was just going to pay later investors returns that didn't exist. But that's the point. Had Bernie Madoff had a brokerage custodian or brokerage clearing relationship at a third-party firm like Fidelity or Schwab or Pershing or Bear Stearns or all of these other firms that offer that service, it would have been impossible to have pulled off that fraud because Fidelity is not going to invent fake trades that Bernie Madoff calls in and says, hey, do me a favor. Pretend I bought all these options in these stocks last month. So having a third party custodian is so key. And so after you ask a potential broker or advisor, how are you compensated? Maybe a second question should be, assuming I send you my money to invest for me, where would the money be held? And if the answer is in-house, okay.

Thank you, guys. Unless it's a Fortune 500, unless it's Goldman Sachs or Fidelity or, you know, if it's like, you know, I'll take care of that. It's in an omnibus account or it's in a bank account that I set up under my own firm's name or we're self-clearing. If you get an answer like that, huge, huge red flag. Somebody tells you they have a new boyfriend and their boyfriend's a club promoter. Huge red flag. You think of some of the big red flags. That's super sus. Hold on to your wallets, boys and girls. Money Rehab will be right back. I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start or even too complicated

if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high-quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time

to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at

Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled

in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. Now for some more money rehab. Super sus, as the kids say, for sure. So thank you next on that one. Let's talk about how much money people should expect to shell out for a good financial advisor, because I did give that analogy. I know it wasn't your favorite, but like if you're hiring a stylist or a nutritionist, you're still paying them a flat fee to give you the best clothes or food advice for you. So how much should you expect to pay a financial advisor if you're not just using a broker or doing it yourself? So let's just talk about RIAs and the wealth management operations at the largest banks like Bank of America, which used to be Merrill Lynch, Morgan Stanley, et cetera, plus all of the midsize and large RIAs. The industry standard is a percentage of the assets under management that you're giving them

to manage for you. There's a couple of reasons for that. The first is it's traditional. The second is it enables the advisor to be paid enough so that they feel like the time they're spending with the clients is time well spent. The third reason is rich people hate when the meter's running. So when you have a wealthy client who's got a financial advisor, they don't want to be charged hourly every time they have a question or every time they send an email, they don't want to feel like the clock is running. That is not the way they prefer to be paid. But one of the more interesting reasons why the percentage fee is so standard is that I know this. And Nicole, you probably know this, but a client will give 100 reasons why they work with an advisor. They'll say everything from, I like their technology, it's user-friendly, or I really like the person, I feel like we have a great relationship, or the person lives nearby, so I just feel comfortable that they're part of my community. There's a million reasons, and they're all valid. But in the end, an advisor who does a terrible job managing someone's money, like really falling far behind in a bull market or blowing them up at the top of a bubble or

trading too often so that there are horrible tax ramifications or whatever. If you do a bad job with the portfolio itself, none of those other intangibles, those financial planning or relationship tangibles are going to matter. You're going to live and die based on how the portfolio does. I know this. You know this. Anyone that's been doing this for more than 10 years understands this. So there's this burgeoning movement among younger advisors where

they want to charge a monthly flat fee. A lot of that is because they're taking on very small clients who just like, they don't have enough money for a 1% fee to even be worth their time. enough money for a 1% fee to even be worth their time. So I understand that. But I think for people with $100,000 or more, the percent of AUM is going to remain the standard for quite a while. It just happens to work out really well and make sense from a variety of perspectives. And this actually brings us really nicely to a Money Rehab listener question from Saray. And she says she's been wanting to work with a fiduciary but hasn't been able to find one in her area who's willing to work with the household income of $250,000 or less. Any recommendations on how to find a local or virtual fiduciary that handles households with less than

250k. So I can't speak to the local part, but I will tell you something that's changed during since the during the pandemic. And since there used to be a thing where geographic location was really important for financial advisory relationship. And it's just like completely gone away. Like the same way that people started to have to feel comfortable buying their groceries online, doing like telehealth and seeing a doctor online. I think every advisor in America is at a point where they have at least one relationship that's not local, and they're doing everything online. So I think that should be less of a concern. Yes, of course, all things being equal, it would be great to go play golf or have lunch with the person that's managing your money. But I just don't think in this day and age, that should be

the starting point. Just my personal opinion. How do you find firms that are interested in dealing with you at that level? I think a lot of people with income of a quarter of a million or under, maybe people that haven't yet amassed a million dollars, they rely on referrals from the large online brokerages. So Schwab, Fidelity, they all have these paid referral programs where they will take someone who's looking for more advice than just what funds do I buy? And they will refer that person to a local registered investment advisory firm, RIA firm. And it's a huge business. And a lot of very big RIAs were built on those referral networks. So that's one way. Another way would be to start on the CFP website. Sometimes cheap is expensive. I think financial

advice and portfolio management are two examples of there being no shortcut. And obviously I'm biased. This is what we do for a living. But we take it really seriously. We're building plans for people that are living movable, changeable lifestyles. And so much of the job comes after you build the initial plan. Okay, well, let's have the initial conversation. So let's look at how a conversation like this is going to happen in practice. We've done a lot of talking about what you should ask. So can we do a special edition of Money Rehab Masterpiece Theater where I am the potential client and you're the advisor?

And now we proudly present another edition of Money Rehab Masterpiece Theater. Please silence your cell phones. Hey, Mr. RIA, before we chat further, can you please confirm if you are registered with the state or with the SEC? Well, yes, I am. SEC? Well, yes, I am. I also have an investment advisor representative who works with me and also abides by strict fiduciary practices. Great. And how does your compensation structure work? I take a 1% fee of all of your assets under management. Do you take fees for buying mutual funds or 12B1 marketing fees? Nicole, that's such a great question. I'm glad you asked. No, one marketing fees? Nicole, that's such a great question. I'm glad you asked. No, our percentage fee is the only fee and we do not participate in any pay to play fees as compensation. Wonderful.

So to clarify, you don't receive compensation for trading any stocks or bonds? That is correct. This is really important to me. So I just want to make sure that I'm making the right decision. Thank you so much for taking the time to answer these questions. I only have a few more. Do you have any affiliation with a broker dealer? I don't. I know there are some fiduciaries who also sell products, so they receive investment commissions as well.

But that's not how I do business. I really appreciate that. I find those RIAs who are brokers offensive at best, and I assume you don't take my money directly? That's right. I work with many reputable third party custodians like Charles Schwab, Fidelity, and so on. You may choose whichever one you prefer, and you will have access to your money and accounts through them at all times with regular statements going straight to you. Thank you so much for getting into the nitty gritty with me. I would love to continue this

conversation in greater detail so I can go over my specific goals and hopes for added value in my investments. And scene. I don't know about you. I smell Oscar. For today's tip, you can take straight to the bank. If you're ready to take this search into your own hands, check out the link in the show notes. There you can find the script I used with Josh today and the websites you can use to find your perfect financial advisor match. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson.

Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. Thank you.